In the fall of 2018, the telecom industry was shaken up by Apple Inc.’s (AAPL) newest iPhone, whose revolutionary new SIM-card technology lets customers switch between carriers, at will. Telecom giants like AT&T Inc. (T), Verizon Communications Inc. (VZ), Sprint Corporation (S), and T-Mobile US Inc. (TMUS), which have traditionally maintained lucrative strongholds over their customer bases, suddenly found themselves struggling to maintain their customer relationships, given the Apple's extraordinary size and reach, according to Barron’s.

Key Takeaways

  • In the fall of 2018, Apple's newest iPhone contained revolutionary new SIM-card technology that lets customers switch between carriers at will.
  • The net effect of this new model is that carriers like AT&T, Verizon, Sprint, and T-Mobile must strive harder to attract and retain customers.

eSIM Winners and Losers

Winners Losers
 Apple  AT&T
 Gemalto  Verizon
 STMicroelectronics  Sprint

What Is eSIM?

SIM, or “subscriber identity module,” is the current technology used by carriers to identify their customers in order to allow those same customers access to their cell networks. It comes in the form of a small card that carriers furnish to customers after contracts are purchased. To change carriers, a customer must obtain a new SIM card. But this isn't the case with Apple's eSIM technology, which is embedded directly in the phone, letting customers easily switch between carriers without the hassle of obtaining a new SIM card.

Telecom Shake-Up

Phones equipped with the new eSIM technology allow users to switch between carriers as easily as if they were switching from one WiFi network to another. Customers are no longer forced to go into a store to change carriers or order a new SIM card for delivery. Consequently, eSIM technology lets customers organically decide to switch carriers based on their own evolving needs as well as the individual merits of specific carriers. The net effect of this new model is that carriers must now strive harder to offer better products and services, in an effort to attract and retain customers.

The incentive for Apple, which was already using STM’s eSIM technology in the iWatch 3 cellular models, was to weaken the hold carriers had on their customers, in the hopes of strengthening its own presence in the marketplace. Such a strategy fit nicely with Apple’s shift toward becoming more of a service-based company and less of a product-oriented operation, according to Barron’s.

Regardless of how Apple benefited from this new technology, cell carriers felt the sting of their reduced role in mobile device authentication and servicing. This added pressure on carriers triggered an investigation by the U.S. Department of Justice to determine whether Verizon and AT&T conspired with the global cellular standards-setting body known as the GSM Association, to hinder the development of eSIM, thus violating antitrust laws. Although the results are still pending, an AT&T spokesman stated in an email: “Along with other GSMA members, we have provided information to the government in response to their requests and will continue to work proactively within GSMA, including with those who might disagree with the proposed standards.”